Pursuit of balancing budget in times of crisis and indeed, in times of recession, is bull-headed

Every economist today will tell you that Prime Minister Stephen Harper's pursuit of balancing the federal budget in times of crisis and indeed, in times of recession, is simply a bull-headed and wrong idea, says Louis-Philippe Rochon. ((Darren Calabrese/Canadian Press))

Short of a miracle, Canada's economy will be in a recession once June's economic numbers are reported.

Keep in mind that a recession is defined as two consecutive quarters of negative growth. Well, Q1 was negative. And now, with both April and May suffering negative growth, June will either be negative or, if positive, most probably too weak to compensate for the rest of the quarter.

There are some naysayers who claim that while there may be a "technical" recession, Canada is not exhibiting the classic signs of a recession, like high unemployment. They point to Canada's robust employment numbers and its stable unemployment rate as proof that we are well into a recovery.

Yet such tomfoolery ignores the numbers behind the statistics. Take the fall in labour market participation. Once factored in, Canada's unemployment rate is closer to nine per cent — hardly something to be happy about.

Many, of course, will blame the oil crisis, and undoubtedly it is a factor. But there is more at play here. In fact, manufacturing faced a significant decline.

And despite the low dollar, our exports have yet to increase significantly, and many claim they will remain weak for quite some time.

While events are a large part of it, blame must also be placed on economic policy, and in this case directly at the feet of the Harper government for its refusal on the one hand to even recognize the recession (or the possibility of one), and on the other, to address it head on.

After all, a government must govern, and on the economic front Stephen Harper has shown very little leadership, preferring policies aimed at giving tax breaks to the rich — undoubtedly the very same people who will vote for him in October.

But as an approach to dealing with this generalized and well-entrenched weakness of the Canadian economy (don't forget, we are now near the eighth anniversary of the financial crisis), Harper's economics have failed us miserably. On top of that, he seems single-mindedly obsessed with balancing the books (which we now find out are no longer balanced).

Fiscal stimulus needed, not austerity

There may be a time and place to balance the books but now is not the time. Every economist today will tell you that Harper's pursuit of balancing the federal budget in times of crisis and indeed, in times of recession, is simply a bull-headed and wrong idea.

It does not help the economy; in fact, it hurts it — and hurts it deeply. At the very least, it is preventing the economy from taking flight and keeps it well anchored in a depressed state.

What we need now is more fiscal stimulus. We have heard this from many economists now and Harper must deliver the goods.

Stephen Poloz, the governor of the Bank of Canada, is doing his best. Indeed, interest rates were reduced yet again. But these drops in interest rates will have negligible effects: increased monetary stimulus at this point of the game is not the way to go.

There is now considerable agreement on this as well but Poloz has very little choice. In the absence of any fiscal stimulus, it has fallen on his shoulders to do something — anything.

Harper's behaviour in all this seems rather odd. We are well aware of the absence of empirical support in favour of austerity, yet austerians like Harper insist on claiming that their approach is somehow superior, that contractions in fiscal stimulus will somehow, magically, be expansionary.

Imagine geocentrists being shown proof that the earth actually revolved around the sun, and dismissing the new science as fuddleduddlery. This is the world in which austerians like Harper live: first, deny fiscal stimulus can make any positive contribution to economic growth, despite the mountain of scientific evidence. Next, deny the mountain exists.

In the face of the lack of evidence and empirical support for their views and policies, one can only conclude that ideology and powerful interests are what keep these ideas afloat.

This is where Harper's policies come in: adopt policies that bring rewards to those who support you to the detriment of the rest, since they will contribute to your party that will get your elected and perpetuate those failed policies.

In this world, austerity and balanced budgets have nothing to do with economics. It's all politics.

Louis-Philippe Rochon is associate professor of economics at Laurentian University and co-editor of the Review of Keynesian Economics.

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